Bailed-out bank reports $2bn loss

Bank of America reported a third-quarter loss today of more than US$2bn (€1.34bn) in a sign that the sector has yet to put the crisis firmly behind it.

The second-largest US bank, which snapped up Merrill Lynch amid last autumn’s crisis, revealed mounting pain from loan defaults as consumers to continue struggle.

Loan losses at Bank of America (BoA) totalled almost $10bn (€6.72bn) between July and September, up nearly $1bn (€672,583) from the second quarter. The bank also added $11.7bn (€7.8bn) to its reserves to cover bad loans.

Its figures provided a reminder of the issues still hampering the sector after better-than-expected results from JP Morgan Chase and Goldman Sachs earlier in the week had raised optimism of a swift recovery.

Goldman Sachs yesterday reported third-quarter net earnings soaring to $3.19bn (€2.14bn) from $845m (€568.11m) a year ago.

JP Morgan had already stunned markets on Wednesday with news of a $3.6bn (€2.41bn) profit.

But JP Morgan also sounded a note of caution as it flagged up loan loss concerns.

It almost doubled the amount of money it set aside for failed home and credit card loans in the quarter in anticipation of further borrower defaults.

Ken Lewis, chief executive of BoA, said today: “Obviously, credit costs remain high, and that is our major financial challenge going forward.

“However, we are heartened by early positive signs, such as the levelling of delinquencies among our credit card numbers.”

It was announced earlier this week that Mr Lewis would take no pay or bonus for 2009 ahead of his planned departure at the end of the year.

He has come under heavy fire for the bank’s takeover of Merrill at the height of the crisis, which landed BoA with heavy losses and saw the group turn to the Government for hefty state support.

BoA, which is being investigated by federal authorities for its Merrill acquisition, has received $45bn (€30.25bn) in bailout funds as part of the US government’s $700bn (€470.74bn) financial rescue package.